STAYER ECO 450 Week 5 Midterm Exam .pdf

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1. On average, persons in the United States devote more of their annual budgets to
taxes than they do to food.
2. A universally observed function of government is the establishment of property
rights.
3. The total share of GDP accounted for by government spending in the United
States has declined significantly since 1980.
4. In 1929, the federal government spent more than was spent by state and local
governments.

5. Since 1930, the percent of GDP devoted to government expenditures has more
than tripled.
6. The costs imposed by government regulations on business firms are included in
budget data on government expenditures.
7. Government consumption does not require resources to be reallocated from
private to government use.
8. Since 1959, the percent of federal government expenditures devoted to transfers
has increased by more than 50 percent.
9. Transfer payments, including Social Security and welfare and medical assistance,
account for nearly 60 percent of federal government expenditures.
10. Interest on the federal government’s debt accounts for about 20 percent of
federal government expenditure.
11. Federal grants-in-aid to state and local governments finance about 20 percent of
annual spending by these governments.
12. The federal government allocates about 10 percent of its budget to Social
Security.
13. State and local governments in the United States spend a bit more than onethird of their budgets on education.
14. Sales taxes account for about 22 percent of state and local government revenue
in the United States.
15. The federal government obtains about half of its revenue annually from retail
sales taxes.
16. State governments do not fund any part of Medicaid.
17. The social compact is an 18th century idea by political theorists.
18. The proportion of revenue received by the federal government from payroll
taxes is higher than the proportion of revenue received by state and local
governments from payroll taxes.
Multiple Choice Questions
1. The real cost of government goods and services is:
a. money.

b. taxes.
c. the private goods and services foregone.
d. inflation.
2. If the economy is currently operating on a point on the production possibility
curve for government goods and services versus private goods and services,
a. an annual increase in government goods and services can be obtained without
any sacrifice of annual private goods and services.
b. it will be impossible to increase annual output of government goods and services.
c. a decrease in the annual output of government goods and services will have no
effect on the annual output of private goods and services.
d. a decrease in the annual output of government goods and services will allow an
increase in annual output of private goods and services.
3. Government goods and services are usually:
a. not rationed by prices.
b. sold in markets.
c. made available to persons according to their willingness and ability to pay.
d. financed by revenue obtained from sales.
4. Taxes:
a. are prices paid for the right to consume government goods and services.
b. are compulsory payments not directly related to the benefits received from
government goods and services.
c. never affect economic incentives.
d. are used by private firms to raise revenue.
5. A mixed economy is one in which:

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